Ambuja’s standalone EBITDA declined 14% y-o-y to Rs 3.7 billion (+24% q-o-q) amid rising cost pressures and subdued volumes (+3% y-o-y). The stock is expensive at 15X CY2017E EBITDA and 32X earnings. We maintain Reduce with a revised TP of Rs 230 (from Rs 235). Ambuja reported 3% y-o-y increase in volumes, similar to ACC’s but ahead of Ultratech’s volume growth in the quarter. ACEM reported revenues of Rs 25.4 billion (+5% y-o-y, +15% q-o-q), EBITDA of Rs 3.7 billion (-14% y-o-y, +24% q-o-q) and net income of Rs 2.5 billion (-19% y-o-y, +40% q-o-q) against our estimate of Rs 24.8 b, Rs 3.6 billion and Rs 2.1 billion, respectively.
Despite 2% y-o-y increase in realisations to Rs 4,210/tonne (-4% q-o-q), EBITDA/tonne declined by 16% y-o-y to Rs 606/tonne (+3% q-o-q) due to 6% y-o-y increase in costs to Rs 3,600/tonne (-5% q-o-q).
Lower effective tax rate of 21%, and higher other income from write-back of provisions relating to interest on income tax led to net income of Rs 2.5 billion compared to our estimates of Rs 2.1 billion. ACEM’s consolidated EBIDTA declined 11% y-o-y to Rs 7.3 billion (+42% q-o-q) despite volume growth of 3% y-o-y due to cost pressures; EBITDA/tonne declined 14% y-o-y to Rs 576/tonne.
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Cement prices in ACEM’s key markets increased by ~Rs 23/bag m-o-m in April 2017. Weak cement prices (-4% q-o-q) and volumes (+3% q-o-q) in Q1CY17 led to revision in earnings estimates, though price increases taken in April 2017 lend some credibility to our revised assumption of Rs 380/tonne (Rs 25/bag) increase in cement realisations in CY2017 for ACEM.
Any rollback in prices here on, and which remains a possibility given lackluster demand will result in another year of earnings downgrade as seen in the past few years. At 15X EV/EBITDA on CY2017E, ACEM is trading at historical peak multiples with EBITDA growth of 28% CAGR (10% growth in CY2016) and earnings growth of 34% CAGR over CY2016-19E. We cut our consolidated EBITDA estimate for CY2017-18E by 4-6%. We estimate EPS of Rs 7.7, Rs 11.3 and Rs 14 for CY2017E, CY2018E and CY2019E. The stock trades at 32X/22X CY2017/18E earnings.